Since I have a workaround should I close this? Or, since my system's using Mercurial 3.5.1 should the code be skipping the workaround for older versions?

Yup, I understand now: we enable the extension system-wide, so I'll update the hgrc in Phabricator's clone of the repo with "blackbox = !" to disable it.

In T9393#136524, @epriestley wrote:

Why are you interested in running this extension?

This appears to have been fixed: I've updated to a newer revision and the problem no longer occurs.

Yup - that's the plan in the longer term, but I don't yet have buy-in to make such a major change. So, I'm hoping to set up Diffusion as just a repository browser to replace the hgweb interface which has several shortcomings.
If I can show people how great Phabricator is, then in future I hope to move users over from accessing repositories directly and managing permissions through a combination of unix groups and ACLs, to having everything done through Phabricator. But since we have over 100 repositories, I'm hoping that I won't need to duplicate them but can instead set the default repository path to that of the official location on disk and have Phabricator just import the changesets.

So in order to have just a single copy that Phabricator manages, I'd need to prevent other users (e.g. via ssh) being able to commit to it outside of Diffusion (e.g. via "hg push ssh://server//home/hg/myproject")?

This appears to solve the problem for me, though Phabricator appears to ignore the 'Track Only' setting and instead imports all hundred or so branches; I don't know if that's at all related to @Jaraill's change though. And I'm also running into T7100.

I'm running into this problem too, with Mercurial 3.1.2 (with Python 2.7.6) and phabricator 3463ce8a514f87287cd961ded284e60153e851d8 (from Fri 3rd Oct).

hg heads -c --template "{branch}\n" | wc -l